Washington Gridlock: Should Your Retirement Plan Care?

It seems like every time you turn on the news these days, there's a new headline from Washington designed to grab your attention and maybe even make you a little anxious. Right now, the big story is the looming threat of another government shutdown.

When you are retired or getting close to it, this kind of uncertainty can feel especially unsettling. After all, you’ve worked your entire life to build your nest egg, and the last thing you want is for political squabbling to put it at risk. It’s a completely understandable feeling.

So, let's talk about it. Should the political drama in Washington cause you to change your financial plan? In my experience, the answer is almost always a firm no. While the headlines are loud, history gives us a much quieter, more reassuring perspective.

A Familiar Story with a Predictable Ending

First, it’s important to understand what a government shutdown is and, just as importantly, what it isn’t. Every year, Congress has to pass a budget to fund the government for the next fiscal year, which starts on October 1st. When they can’t agree on a full budget by the deadline, they often pass what’s called a “continuing resolution”—think of it as a temporary funding patch to keep the lights on while they continue negotiating.

If they can’t even agree on that, non-essential government services temporarily stop. This is a shutdown.

Does that sound a little dysfunctional? It can be. But it’s also not new. In fact, it’s a surprisingly common part of our political process. Just look at this chart.

As you can see, shutdowns have happened regularly since 1980, under presidents from both political parties. We saw them during the Reagan administration, a 21-day shutdown under President Clinton in 1995, a 16-day shutdown under President Obama in 2013, and the longest one on record—35 days—under President Trump in 2018-2019.

What do you notice? Despite all those periods of gridlock, indicated by the vertical dashed lines, the long-term trend of the market has been steadfastly upward. These events are temporary political squabbles, not permanent economic catastrophes.

Separating the Real Concerns from the Temporary Noise

Now, when I talk to clients, I often find that the anxiety about a shutdown is really tangled up with a much bigger, more valid concern: the national debt. It's easy to look at a chart showing our federal debt level and feel a sense of unease.

Seeing our national debt at around 119% of our country's total economic output (our Gross Domestic Product, or GDP) is certainly something to take seriously. It’s a long-term challenge that our country’s leaders need to address with thoughtful policy.

But it's critical to separate these two issues.

Think of it this way: The national debt is like the overall mortgage on your financial house. It's a big, long-term obligation that needs to be managed responsibly over decades. A government shutdown, on the other hand, is like a loud, disruptive argument in the kitchen about the monthly grocery budget. It’s frustrating, it creates temporary chaos, and you wish everyone would just get along. But that argument over the grocery list isn’t going to cause the bank to foreclose on your house.

One is a short-term political dispute over annual spending, while the other is a long-term fiscal challenge. Conflating the two can lead to making emotional, short-sighted decisions with your retirement savings

Why the Market Usually Just Shrugs

So, why do financial markets, which can seem so volatile, typically look past these shutdown showdowns?

The reason is simple: markets are forward-looking and focus on the fundamental drivers of the economy. They care about things like:

• Company Earnings: Are businesses healthy and profitable?

• Consumer Spending: Are people confident and buying goods and services?

• Economic Growth: Is the overall economy expanding?

• Innovation: Are new technologies creating new opportunities?

A temporary shutdown doesn't fundamentally change the value of the innovative, productive companies that make up the U.S. and global economy. It can delay some economic reports and cause a minor, temporary dip in economic activity if it drags on, but it doesn't break the long-term economic engine.

Uncertainty is a constant in investing. The chart below shows an index of economic policy uncertainty. As you can see, it spikes all the time—during the financial crisis, the pandemic, and other periods of stress. But it always settles back down.

A shutdown might cause a temporary blip on this chart, but investors with a long-term perspective understand that it’s just more noise, not a fundamental change in the signal.

Focus on Your Financial House, Not the White House

The bottom line is this: your retirement plan was not built around the assumption that politicians would always agree. It was built to be resilient.

Your financial house was designed and constructed to weather all sorts of storms—market volatility, economic recessions, inflation, and yes, periods of political noise. A government shutdown is like a loud thunderstorm passing overhead. It’s unsettling to watch, but it isn’t the kind of hurricane that threatens the foundation you have so carefully built.

The most important thing you can do during times like these is to separate your feelings about politics from your investment strategy. Stick to your plan, stay focused on your long-term goals, and don't let the headlines tempt you into making a decision you might later regret